Risk assessment

Tentative recovery in growth and gradual consolidation of the banking system

Activity resumed after several years of recession. Household and business confidence strengthened during the year, especially with the agreement reached in June 2017 with international creditors.

The recovery is set to be more marked in 2018. Household consumption is expected to strengthen thanks to improvements in the labour market. The unemployment rate is set to gradually drop to 20%, but wage growth will remain weak. Gross fixed capital formation should improve as a result of confidence building and better financing conditions. This recovery in investment could however be limited by the risk that still weighs on the banking system. Access to bank financing has increased, but the high level of bad loans continues to limit its contribution to economic activity. The question of bad debts is all the more crucial as the ECB, after rejecting the IMF’s request for a new asset quality review, has postponed the date of its stress tests to the first half of 2018. Greek banks were well re-capitalised in December 2015, but the quality of their assets remains uncertain. Under the impetus of the Greek central bank, major banking institutions will be forced to accelerate the cleaning up of their balance sheet. The gradual stabilising of the banking system should favour a more sustained recovery of bank deposits, the growth of which has remained slow (+7% in 2017). The normalisation of the financial situation should, moreover, favour the gradual lifting of the capital control whose measures have been lightened for companies, but remain restrictive for households.

A primary surplus in line with its objectives, but a very heavy debt

The fiscal consolidation started in 2015, as part of the third financial assistance programme for Greece, should continue under the supervision of the European Stability Mechanism (ESM). The programme, which will end on 20 August 2018, has made EUR 86 billion available in exchange for significant tax and economic reforms, avoiding the country’s payment default and the bankruptcy of the banking system. Since 2015, parliament has approved a number of reforms, the application of which will run until 2019, the most important being the controversial pension reform, the direct and indirect taxation overhaul (reform of VAT, anti-tax evasion rules, broadening of the tax base). The objective is, ultimately, to reach a primary surplus of 3.5% as of 2018 against 1.75% set in 2017. The fragile recovery and significant reduction in public spending resulted in a primary surplus of 2.1%, above the ESM target. In addition, in September 2017 the European Union (EU) symbolically announced the closure of the excessive deficit procedure opened since 2009. The 2018 budget plans to increase the primary surplus to 3.75% thanks to a stronger economic recovery, but the Greek government’s estimates are based on an optimistic scenario. The IMF’s primary surplus forecast is more pessimistic. The international institution agreed in principle in July 2017, has an assistance programme of EUR 1.6 billion, contingent upon European lenders participating in a debt relief scheme. The views of the IMF and European creditors differ on the sustainability of Greek debt, which is close to 179% of GDP. The option of debt relief in the form of reprofiling European loans via the ESM has been discussed without a final agreement between the different parties (IMF ECB, COM, ESM and the Greek Government). The validation of the second valuation review also allowed Greece to return to international markets with a bond issue of EUR 3 billion over five years at a rate between 4.875% and 4.75%. In 2018, the government intends to repeat the experiment and will proceed with several issues of Greek treasury bills to lay the groundwork for the mandatory refinancing of the country on the markets after the end of the assistance program, while rating agencies have positively re-evaluated Greece’s sovereign rating.

The current account is expected to remain slightly in surplus in 2018. Tourism revenue and the export trend will more than offset the increase in the energy bill.

Alexis Tsipras: Between austerity and waning government popularity

Since the parliamentary elections of September 2015, the Syriza radical left coalition government led by Alexis Tsipras has been leading the country. Founded on a weak coalition with nationalists, the government, revamped in 2016 and under pressure from international donors, had to implement an austerity policy that is gradually reducing its popularity among voters. The gamble seems to have been a successful one, however, as the country prepares for the end of the third European financial assistance programme in 2018. Despite some redistributive measures made possible by the primary surpluses generated in 2016 and 2017 (EUR 617 million in measures aimed at the most disadvantaged households in 2017 and EUR 1.4 billion in 2017), Syriza has secured second place in the polls since early 2016 after the New Democracy party, which is the main opposition. While the reconfiguration of the political chessboard is taking shape for the 2019 legislative elections, early elections are not excluded.

Last update : January 2018

Payment

Bills of exchange, as well as promissory letters, are used by Greek companies in domestic and international transactions. In the event of payment default, a protest certifying the dishonoured bill must be drawn up by a public notary within two working days of the due date.

Similarly, cheques are still widely used in international transactions. In the domestic business environment, however, cheques are customarily used less as an instrument of payment, and more as a credit instrument, making it possible to create successive payment due dates. It is therefore a common and widespread practice for several creditors to endorse post-dated. Furthermore, issuers of dishonoured cheques may be liable to prosecution provided a complaint is lodged.

Promissory letters (hyposhetiki epistoli) are another means of payment used by Greek companies in international transactions. They are a written acknowledgement of an obligation to pay issued to the creditor by the customer’s bank committing the originator to pay the creditor at a contractually fixed date. Although promissory letters are a sufficiently effective instrument, in that they constitute a clear acknowledgement of debt on the part of the buyer, they are not deemed a bill of exchange and so fall outside the scope of the “exchange law”.

SWIFT bank transfers, well established in Greek banking circles, are used to settle a growing proportion of transactions and offer a quick and secure method of payment. SEPA bank transfers are also becoming more popular as they are fast, secured and supported by a more developed banking network.

In 2015, Greece imposed restrictions on flows of capital outside the country. All payments directed abroad follow a specific procedure, and are monitored by the banks and the Ministry of Finance, with restrictions placed on the amount and nature of the transfer.

Debt collection

Amicable phase

Before initiating proceedings in front of the competent court, an alternative method to recover a debt is to try to agree with the debtor on a settlement plan. Reaching the most beneficial arrangement can usually be achieved by means of a negotiating process.

The recovery process commences with the debtor being sent a final demand for payment via a registered letter, reminding him of his payment obligations, including any interest penalties as may have been contractually agreed – or, failing this, those accruing at the legal rate of interest. Interest is due from the day following the date of payment stipulated in the invoice or commercial agreement at a rate, unless the parties agree otherwise, equal to the European Central Bank’s refinancing rate, plus seven percentage points.

Legal proceedings

Fast track proceedings

Creditors may seek an injunction to pay (diataghi pliromis) from the court via a lawyer under a fast-track procedure that generally takes one month from the date of lodging the petition. To engage such a procedure, the creditor must possess a written document substantiating the claim underlying his lawsuit, such as an accepted and protested bill, an unpaid promissory letter or promissory note, an acknowledgement of debt established by private deed, or an original invoice summarising the goods sold and bearing the buyer’s signature and stamp certifying receipt of delivery or the original delivery slip signed by the buyer.

The ruling issued by the judge allows immediate execution subject to the right granted to the defendant to lodge an objection within fifteen days. To obtain suspension of execution, the debtor must petition the court accordingly.

Based on current competence thresholds, a “justice of the peace” (Eirinodikeio) hears claims up to EUR 20,000. Above that amount, a court of first instance presided by a single judge (Monomeles Protodikeio) hears claims from EUR 20,000 to EUR 250,000. Claims over EUR 250,000 are reviewed by a panel of three judges (Polymeles Protodikeio).

Ordinary proceedings

Where creditors do not have written and clear acknowledgement of non-payment from the debtor, or where the claim is disputed, the only remaining alternative is to obtain a summons under ordinary proceedings. The creditor files a claim with the court, who serves the debtor within 60 days. The hearing would be set at least eighteen months later. Greek law allows the court to render a default judgment if the respondent fails to file a defence. Since 2016, the lawsuit procedure has been changed, and is now based exclusively on documentation provided to support the claim.

Enforcement of a legal decision

Enforcement of a domestic decision may commence once it is final. If the debtor fails to satisfy the judgment, the latter is enforceable directly through the attachment of the debtor’s assets.

For foreign awards rendered in an European Union member state, Greece has adopted advantageous enforcement conditions such as the EU Payment Orders or the European Enforcement Order. For decisions rendered by non EU countries, they will be automatically enforced according to reciprocal enforcement treaties. In the absence of an agreement, exequatur proceedings will take place.

Insolvency proceedings

Restructuring proceedings

This procedure aims to help the debtor restore its credibility and viability, and continue its operations beyond bankruptcy. The debtor negotiates an agreement with its creditors. During this procedure, claims and enforcement actions against the debtor may be stayed but the court will appoint an administrator to control the debtor’s assets and performances. The reorganization process starts with the debtor’s submission of a plan to the court made by specialists, which conducts a judicial review of the proposed plan whilst a court-appointed mediator assesses the creditors’ expectations. The plan can only be validated upon approval by creditors representing 60% of the total debt. (60% is not always applicable, depending on the case and approval by the bank)

Liquidation

The procedure commences with an insolvency petition either by the debtor or the creditor. The court appoints an administrator as soon as the debts are verified. In addition a Pool of Creditors (three members representing each class of creditors) will be given the responsibility of overseeing the proceedings, which terminate once the proceeds of the sale of the business’ assets are distributed.